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Despite over three-quarters of new car sales being financed through manufacturer and dealer finance agreements, it is disturbing how few people really understand what they are signing up to.

Here at The Car Expert, our articles on car finance are by far the most popular pieces on the website. They also generate far more comments, questions and debate than most other topics. But new research provided to The Car Expert by BMW Financial Services UK reveals the true level of confusion experienced by British car buyers.

Normally I tend to steer clear of manufacturer-sourced data in press releases, but the BMW findings, based on a survey of more than 1,000 car buyers across the UK, make for grim reading. Even allowing for any discrepancies in how the questions were asked and answers graded, the results are impossible to ignore. The infographic below highlights the main findings very neatly.

They also help to explain why so many people get themselves into trouble with their car finance payments, as a majority of buyers clearly don’t appreciate what they are committing themselves to when they sign a finance agreement. 

Luckily for you all, The Car Expert has a fantastic car finance glossary which explains all the key terms in plain English.

Four in five buyers can’t explain key finance products

The PCP (personal contract purchase) is the most popular finance instrument used for new car sales, yet BMW’s research found that an astonishing 88% of men and 75% of women surveyed could not explain what a PCP was.

The figures for personal contract hire (PCH), GAP insurance and Guaranteed Minimum Future Value (GMFV) were just as bad. In each case, fewer than 20% of car buyers could explain their meanings.

28% of car buyers (over a quarter) couldn’t explain any car finance terminology. Two thirds couldn’t explain what APR (annual percentage rate) means, despite it being a key indicator of how expensive their finance would be.

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Car dealers are terrible at explaining car finance products

The findings are a damning indictment on the whole car industry, and show very clearly that car dealers are terrible at explaining finance products to their customers.

Having worked in the industry for over a decade, I know first-hand that most car salesmen and Business Managers tend to gloss over many aspects of the finance products and head straight to the monthly payments.

And as long as dealer sales staff are paid hefty commissions on finance sales, this is not going to change.

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Buyers need to be more thorough

The other side of the coin is that car buyers need to be more attentive when considering the implications of buying a car on finance. Most buyers are only interested in the monthly figure, when they need to be considering the full implications of a finance contract.

Buyers need to demand a complete breakdown of finance offers and take the time to consider them properly. They should not be making decisions on the spot and under pressure from salespeople, but should instead go away and read the finance quotation in full and in private so they can understand everything they are committing to.

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BMW Financial Services says that it is pledging to simplify its finance offers, which is to be welcomed, but the process for selling finance packages also needs to change across the entire industry if customers are going to be treated with proper levels of fairness and transparency.

The Financial Conduct Authority’s mantra is ‘Treat Customers Fairly’, but they are going to have to crack down much harder on car dealers if this is ever going to be achieved.

Whilst it’s great for this website’s traffic that so many people are searching for explanations on how car finance works, it is not at all good for the welfare of this country’s car buyers. Tough action is needed.

Car finance jargon infographic

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Stuart Masson
Stuart Masson
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.


  1. Just a couple of quick addition to this list, which I feel is important to stress, is the “advanced rental”.
    Many vehicle leasing companies appear to be cheaper than others by showing monthly figures with an advanced rental equal to 12 months up front, so the initial payment by the customer is very high.
    In addition to this they often advertise lower, unrealistic mileage allowances. In some scenarios this can work, however, in my experience often people tend to to pay either 1,3 or 9 monthly rentals in advance, with a mileage allowance of 10,000 per annum.

    It’s important to understand exactly what the company is advertising, and why they may appear much cheaper.

    • Hi Denise. If the dealer enters your card details incorrectly, it would almost certainly result in the application being declined as it would show up when the finance company does its checks. If it is a simple error, they should be able to correct it and re-submit it.


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